It’s been a crazy week for China stocks. The CSI 300 surged from its 52-week low to 52-week high in just eight trading days, outpacing the S&P 500’s fastest record of 38 days set in 1968 and 1982.
The CSI 300 Index soared by +15.71% in one week, marking its biggest gain since 2008. Meanwhile, the broader MSCI China delivered a 28% YTD return, surpassing the S&P 500’s 21%. For most of the year, MSCI China lagged behind, but that changed dramatically last week.
It’s no surprise that investors are getting excited about China stocks. Reports suggest that the China Securities Depository and Clearing Corporation worked overtime on Sunday to handle the surge in new securities account openings.
I’ve also received more queries about buying China stocks. However, ETFs are the easiest way to get exposure because this is a broad recovery rather than a sector-specific rally. ETFs capture meaningful returns during rallies like this.
That said, choosing the right China ETF can be tricky as there are so many options. It’s not like in the U.S., where the S&P 500 is the clear favorite. In China, you have the CSI 300, which focuses on stocks listed in Shanghai and Shenzhen, the Hang Seng Tech index for China tech stocks listed in Hong Kong, or the A50, which targets larger A shares. There’s also the MSCI China index, which covers Chinese companies listed around the world. With so many options, there isn’t a clear favorite among investors.
Some investors are looking for China ETFs that can deliver strong short-term returns during this rally, which is the focus of this post. The good news for Singapore investors is that you don’t have to look beyond the SGX to find China ETFs.
In recent years, the number of China ETFs listed on SGX has surged. This is partly due to increased collaboration between financial institutions in Singapore and China, leading to the creation of feeder funds to grow each other’s AUM. As a result, you’ll see two names in these ETFs, such as Phillip-China Universal, UOBAM Ping An, and CGS Fullgoal.
There are currently 17 China equity ETFs listed on the SGX, with some ETFs denominated in different currencies. Below, I’ve ranked them based on their one-week return.
The top four ETFs delivered over 30% returns in one week and are likely to continue capturing returns if the China rally persists. One popular ETF is the Lion-OCBC Securities Hang Seng TECH ETF. Investors may find ETFs tracking the STAR and ChiNext indices less familiar. The STAR Market, part of the Shanghai Stock Exchange, focuses on science and tech innovation companies, while ChiNext is a Shenzhen-based board for growth-oriented enterprises. UOBAM Ping An ChiNext ETF tracks the ChiNext index, while the SOP CSI STAR and ChiNext 50 Index ETF is a hybrid, selecting the top 50 stocks from both boards. Finally, the EV-centric NikkoAM-StraitsTrading MSCI China Electric Vehicles and Future Mobility ETF made the top four.
These ETFs share one characteristic—they are riskier. Their higher volatility, measured by beta, means they can plunge more than others in bad times, but they also outperform during rallies like this. It’s the classic “high risk, high return” scenario. These ETFs may not be suitable for long-term holdings or as core portfolio components, but they can capture higher returns in the short term and serve as tactical allocations or for trading purposes.
On the flip side, ETFs more suited for long-term investing have delivered more moderate returns. These are typically more diversified and represent the broader China economy, as discussed in this post.
Should you buy into the rally?
While there’s plenty of excitement around China stocks, there are doubts about whether this rally will last. China has seen brief surges before, only for them to fizzle out. However, there are key differences this time.
First, Premier Li Qiang made it clear earlier this year that China’s leadership is determined to support the stock market. In China, top-down resolve is crucial for making things happen. In previous years, China focused primarily on the economy, overlooking the stock market. Now, the government recognizes that a weak stock market undermines both confidence and the country’s image.
Second, the current stimulus plan is the largest and most aggressive attempt to jumpstart both the stock market and the economy. Previously, China’s hands were tied, only implementing small-scale stimulus measures that were insufficient for sustainable change. This was largely due to the high and rising interest rates in the U.S. A significant interest rate differential between the U.S. and China would have caused the RMB to weaken sharply, leading to capital outflows and making USD-denominated debts more expensive, which would have worsened China’s property debt crisis. Now, with the Fed cutting rates, China has more room to act.
I believe we will see more significant stimulus policies as the Fed continues to cut rates. Therefore, this China stock market rally could have more legs.
A positive sign is that the China stock market has already bottomed, using MSCI China as a reference. The lowest point during the 2021-2022 crash was in October 2022. While stocks drifted downward in 2023 after a sharp Q4 rally in 2022, the key takeaway is that the recent lows didn’t break below the 2022 low. After three consecutive years of negative returns, MSCI China is now delivering a positive return in 2024, and it has made a one-year high. These are encouraging signs that the market has bottomed out.
However, this is not a blanket call to buy China. It depends on your current exposure. If you already hold China stocks or ETFs, there’s no rush to add more. You might wait for the rally to cool down or for a pullback before increasing your position. If you don’t have any exposure yet but want to get in, it’s fine to start small and add more during dips. Even in a strong rally, stocks won’t go up in a straight line. There will be volatility, and not all investors can handle it. Gradually scaling in with some exposure is a more prudent approach. Don’t go from “Anything But China” to “All Buy China.”